Restaurant franchise lending shows stabilization

May 22, 2012

Although franchise lending has been fairly static from March 2011 to March 2012 and franchisee credit access remains below its long-term average, lending to franchisees in the foodservice and hospitality industries has been greater than average.

This is according to the Franchise Lending Index from the International Franchise Association (IFA) and BoeFly, an online marketplace connecting small business borrowers with lenders. The Index also found that despite a 0.5 percent drop in franchise lending in March, the year-over-year performance for lending to franchise businesses has been more positive, with a gain of 3.18 percent from March 2011 to March 2012.

The data analyzed was from March, the most recent available period. While just 9.6 percent of SBA loans analyzed by dollar amount were extended to franchise businesses, the most active industries witnessed greater-than-average distribution to franchises. Specifically, franchisees received 49.3 percent of all limited-service restaurant loans, 47.3 percent of hotel loans, 31.1 percent of loans to all gas stations with convenience stores, and 14.9 percent of all full-service restaurant loans.

"The drop in franchise lending is an unfortunate symptom of today's challenging credit market, but the positive news is that lending to franchise businesses has remained fairly steady year over year, showing stable long-term growth," said Mike Rozman, co-president of BoeFly. "It is also positive to see higher-than-average levels of credit access among franchisees in large industries such as foodservice and hospitality, which demonstrates that these franchise businesses are growing even in the wake of the financial crisis. We anticipate that these businesses are poised for further growth in the coming months."

The IFA/BoeFly Franchise Lending Index is created from a monthly analysis and integration of both proprietary data from BoeFly's marketplace and franchise loan data from the Small Business Administration (SBA).